HOUSTON (Marcus & Millichap) – The local economy has diversified significantly in recent years, though low oil prices will present challenges during 2015 and apartment operations will soften in the months ahead, according to Marcus & Millichap's first quarter 2015 apartment market report.

"How much low oil prices will affect the market depends greatly on where they stabilize and how long they will remain at that level," the report said. "Global layoffs have been announced by some of the metro's largest energy companies, including BP, Shell, Schlumberger, Baker Hughes and Halliburton. However, the direct impact on Houston remains unclear.

"While downstream industries such as petrochemicals and refining benefit from lower oil prices, growth in this segment of the energy market might not be enough to mitigate total layoffs and job growth will moderate this year. Strong hiring in sectors such as construction, where multifamily development is creating new positions, will offset losses in other areas.

"However, the energy market concerns, combined with a large influx of inventory coming online this year, will affect the apartment market, pushing up vacancy and supporting the slowest rent growth since 2011.

"Investors will remain keen on the Houston apartment market, especially as 2016 presents a pause in the construction cycle that will hasten the realignment of supply and demand.

"Cap rates are projected to rise about 25 basis points this year due to softer operations, which could prompt some owners to list properties. As out-of-state buyers continue to bolster demand for assets in the metro, an uptick in listings could help alleviate the shortage of inventory experienced over the past few years.

"As thousands of luxury apartments come online within the Inner Loop, 1970s- and 1980s-vintage properties will remain in strong demand as these may offer substantial rental upsides or repositioning opportunities. In the southern and eastern portions of the metro, the ongoing expansion of the port and shipping channel, as well as continuing healthcare development, will help drive investment in submarkets nearby."

Houston-The Woodlands-Sugar Land

Multifamily

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